Services growth eased in Dec, prices barely rise

BENGALURU (Reuters) - India's dominant service industry eased off the accelerator in December and firms barely raised prices, increasing pressure on the Reserve Bank of India (RBI) to loosen monetary policy soon, a survey showed on Tuesday.

Weak growth will also add to calls for Prime Minister Narendra Modi's government to speed up the pace of reforms.

The HSBC Services Purchasing Managers' Index (PMI), compiled by Markit, eased to 51.1 in December from November's five-month high of 52.6, nudging it closer to the 50-point that divides expansion from contraction.

A sub-index covering prices charged barely crept above the breakeven mark, 50.2 versus November's 49.6, as firms were only able to pass on some of their more rapidly - but still modestly - rising input costs.

"With roughly 97 percent of survey participants reporting no change in tariffs, the latest increase was negligible and weaker than the average observed over more than nine years of data collection," Markit said in a press release.

In November, India's annual consumer price inflation fell to 4.38 percent, well below the 8 percent which the RBI had hoped to achieve by the end of the year and the lowest since the government started releasing the data in 2012.

Tepid inflation, and weak economic growth, will push the RBI to cut its key lending rates in the second quarter, according to a Reuters poll.

To spur growth, Modi's government has approved some key reforms, including easing land acquisition policy and increasing a foreign investment cap in the insurance sector. It has also stressed a need to reform India's public banking sector.

India's economy is expected to grow "much better" in 2015/16 when compared with the current financial year, Finance Minister Arun Jaitley has said, and firms were therefore more optimistic about the future.

The business expectations sub-index bounced back from November's near-seven-and-a-half year low.

(Reporting by Anu Bararia; Editing by Richard Borsuk)